UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________________________________________
FORM 10-Q
(Mark One)
For the quarterly period ended March 31, 2024
OR
For the transition period from to
Commission file number 001-08604
| (Exact Name of Registrant as Specified in Its Charter) | ||||||||
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |||||||
| (Address of Principal Executive Offices) | (Zip Code) | |||||||
( | ||||||||
| (Registrant’s Telephone Number, Including Area Code) | ||||||||
None | ||||||||
| (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) | ||||||||
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
| N/A | ||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |||||||||||||||||
x | Smaller reporting company | |||||||||||||||||||
| Emerging growth company | ||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The Registrant had 4,415,201 shares of common stock, par value $0.30, outstanding as of May 10, 2024.
INDEX
| Page No. | ||||||||
1
PART I—FINANCIAL INFORMATION
| ITEM 1. | FINANCIAL STATEMENTS | ||||
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
| March 31, 2024 | December 31, 2023 | ||||||||||
| ASSETS | (unaudited) | ||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Accounts receivable, net of allowance of $ | |||||||||||
| Inventory | |||||||||||
| Income tax receivable | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
| Property, plant and equipment, net | |||||||||||
| Intangible assets, net | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Defined benefit pension asset | |||||||||||
| Other assets, net | |||||||||||
| Deferred tax asset | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Current portion of long-term debt and finance lease obligations | $ | $ | |||||||||
| Current portion of operating lease obligations | |||||||||||
| Accounts payable | |||||||||||
| Other accrued liabilities | |||||||||||
| Income tax payable | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt and finance lease obligations | |||||||||||
| Operating lease obligations | |||||||||||
| Deferred tax liabilities | |||||||||||
| Other long-term liabilities | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies | |||||||||||
| Equity: | |||||||||||
Preferred stock, | |||||||||||
Common stock, par value $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated deficit | ( | ( | |||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Total equity | |||||||||||
| Total liabilities and equity | $ | $ | |||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
2
TEAM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Revenues | $ | $ | |||||||||
| Operating expenses | |||||||||||
| Gross margin | |||||||||||
| Selling, general and administrative expenses | |||||||||||
| Operating loss | ( | ( | |||||||||
| Interest expense, net | ( | ( | |||||||||
| Other income, net | |||||||||||
| Loss before income taxes | ( | ( | |||||||||
| Provision for income taxes | ( | ( | |||||||||
| Net loss | $ | ( | $ | ( | |||||||
| Loss per common share: | |||||||||||
Basic and Diluted | $ | ( | $ | ( | |||||||
| Weighted-average number of shares outstanding: | |||||||||||
Basic and Diluted | |||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
3
TEAM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE LOSS
(in thousands)
(Unaudited)
| Three Months Ended March 31, | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| Net loss | $ | ( | $ | ( | ||||||||||
| Other comprehensive income (loss) before tax: | ||||||||||||||
| Foreign currency translation adjustment | ( | |||||||||||||
Defined benefit pension plans: | ||||||||||||||
Amortization of prior service cost | ||||||||||||||
Amortization of net actuarial loss | ||||||||||||||
| Other comprehensive income (loss), before tax | ( | |||||||||||||
| Tax provision attributable to other comprehensive income (loss) | ( | |||||||||||||
| Other comprehensive income (loss), net of tax | ( | |||||||||||||
| Total comprehensive loss | $ | ( | $ | ( | ||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
4
TEAM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands)
(Unaudited)
| Common Stock | Additional Paid-in Capital | Retained Earnings (Deficit) | Accumulated Other Comprehensive Loss | Total Shareholders’ Equity | |||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Net settlement of vested stock awards | ( | — | — | ||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment, net of tax | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
Defined benefit pension plans, net of tax | — | — | — | — | |||||||||||||||||||||||||||||||
| Non-cash compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Net settlement of vested stock awards | ( | — | — | ( | |||||||||||||||||||||||||||||||
| Foreign currency translation adjustment, net of tax | — | — | — | — | |||||||||||||||||||||||||||||||
| Non-cash compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
5
TEAM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net loss | $ | ( | $ | ( | |||||||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Amortization of debt issuance costs, debt discounts, and deferred financing costs | |||||||||||
| Paid-in-kind interest | |||||||||||
| Allowance for credit (gains) losses | ( | ||||||||||
Foreign currency gains | ( | ( | |||||||||
| Deferred income taxes | ( | ( | |||||||||
Loss (gain) on asset disposal | ( | ||||||||||
| Non-cash compensation costs | |||||||||||
| Other, net | ( | ( | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | |||||||||||
| Inventory | ( | ||||||||||
Prepaid expenses and other assets | ( | ||||||||||
| Accounts payable | ( | ||||||||||
| Other accrued liabilities | ( | ( | |||||||||
| Income taxes | |||||||||||
Net cash provided by (used in) operating activities | ( | ||||||||||
| Cash flows from investing activities: | |||||||||||
| Capital expenditures | ( | ( | |||||||||
| Proceeds from disposal of assets | |||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Borrowings under Revolving Credit Loans | |||||||||||
| Payments under Revolving Credit Loans | ( | ( | |||||||||
| Payments under ME/RE Loans | ( | ||||||||||
Payments under Corre Incremental Term Loans | ( | ||||||||||
| Payments for debt issuance costs | ( | ||||||||||
| Other | ( | ||||||||||
Net cash used in financing activities | ( | ( | |||||||||
| Effect of exchange rate changes on cash | ( | ||||||||||
Net decrease in cash and cash equivalents | ( | ( | |||||||||
| Cash and cash equivalents at beginning of period | |||||||||||
| Cash and cash equivalents at end of period | $ | $ | |||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
6
TEAM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business. Unless otherwise indicated, the terms “we,” “our,” “us,” “Team,” and “the Company” are used in this report to refer to either Team, Inc., to one or more of our consolidated subsidiaries, or to all of them taken as a whole. Our stock is traded on the New York Stock Exchange (the “NYSE”) under the symbol “TISI”.
We are a global, leading provider of specialty industrial services offering clients access to a full suite of conventional, specialized, and proprietary mechanical, heat-treating, and inspection services. We deploy conventional to highly specialized inspection, condition assessment, maintenance and repair services that result in greater safety, reliability, and operational efficiency for our clients’ most critical assets. We conduct operations in two segments: Inspection and Heat Treating (“IHT”) and Mechanical Services (“MS”). Through the capabilities and resources in these two segments, we believe that we are uniquely qualified to provide integrated solutions involving: inspection to assess condition; engineering assessment to determine fitness for purpose in the context of industry standards and regulatory codes; and mechanical services to repair, rerate or replace based upon the client’s election. In addition, we are capable of escalating with the client’s needs, as dictated by the severity of the damage found and the related operating conditions, from standard services to some of the most advanced services and integrated asset integrity and reliability management solutions available in the industry. We also believe that we are unique in our ability to provide these services in three distinct client demand profiles: (i) turnaround or project services, (ii) call-out services, and (iii) nested or run-and-maintain services.
IHT provides conventional and advanced non-destructive testing services primarily for the process, pipeline and power sectors, pipeline integrity management services, and field heat treating services, as well as associated engineering and condition assessment services. These services can be offered while facilities are running (on-stream), during facility turnarounds or during new construction or expansion activities. In addition, IHT provides comprehensive non-destructive testing services and metallurgical and chemical processing services to the aerospace industry, covering a range of components including finished machined and in-service components. IHT also provides advanced digital imaging including remote digital video imaging.
MS provides solutions designed to serve clients’ unique needs during both the operational (onstream) and off-line states of their assets. Our onstream services include our range of standard to custom-engineered leak repair and composite solutions; emissions control and compliance; hot tapping and line stopping; and on-line valve insertion solutions, which are delivered while assets are in an operational condition, which maximizes client production time. Asset shutdowns can be planned, such as a turnaround maintenance event, or unplanned, such as those due to component failure or equipment breakdowns. Our specialty maintenance, turnaround and outage services are designed to minimize client downtime and are primarily delivered while assets are off-line and often through the use of cross-certified technicians, whose multi-craft capabilities deliver the production needed to achieve tight time schedules. These critical services include on-site field machining; bolted-joint integrity; vapor barrier plug testing; and valve management solutions.
We market our services to companies in a diverse array of heavy industries which include:
•Energy (refining, power, renewables, nuclear, offshore oil and gas, and liquefied natural gas);
•Manufacturing and Process (chemical, petrochemical, pulp and paper industries, automotive, and mining);
•Midstream (valves, terminals and storage, and pipeline);
•Public Infrastructure (construction and building, roads, dams, amusement parks, bridges, ports, and railways); and
•Aerospace and Defense.
Basis of presentation. These condensed consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (the “SEC”). In the opinion of management, these unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of results for such periods. The results of operations for any interim period are not necessarily indicative of results for the full year. Certain disclosures have been condensed or omitted from the interim financial statements included in this report. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC (“our Annual Report on Form 10-K”).
Consolidation. The condensed consolidated financial statements include the accounts of our subsidiaries where we have control over operating and financial policies. All material intercompany accounts and transactions have been eliminated in consolidation.
7
Reclassifications. Certain amounts in prior periods have been reclassified to conform to the current year presentation. Such reclassifications did not have any effect on our financial condition or results of operations as previously reported.
Significant Accounting Policies. Our significant accounting policies are disclosed in Note 1 - Summary of Significant Accounting Policies and Practices in our Annual Report on Form 10-K. On an ongoing basis, we evaluate the estimates and assumptions, including among other things, those related to long-lived assets. Since the date of our Annual Report on Form 10-K, there have been no material changes to our significant accounting policies.
2. REVENUE
Disaggregation of revenue. Essentially all of our revenues are associated with contracts with customers. A disaggregation of our revenue from contracts with customers by geographic region, by reportable operating segment and by service type is presented below:
Geographic area (in thousands):
| Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | |||||||||||||||||||||||||||||||||||||
| (unaudited) | (unaudited) | |||||||||||||||||||||||||||||||||||||
| United States and Canada | Other Countries | Total | United States and Canada | Other Countries | Total | |||||||||||||||||||||||||||||||||
| Revenue: | ||||||||||||||||||||||||||||||||||||||
| IHT | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| MS | ||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
Revenue by Operating segment and service type (in thousands):
| Three Months Ended March 31, 2024 | |||||||||||||||||||||||||||||
| (unaudited) | |||||||||||||||||||||||||||||
| Non-Destructive Evaluation and Testing Services | Repair and Maintenance Services | Heat Treating | Other | Total | |||||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||||||
| IHT | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| MS | |||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Three Months Ended March 31, 2023 | |||||||||||||||||||||||||||||
| (unaudited) | |||||||||||||||||||||||||||||
| Non-Destructive Evaluation and Testing Services | Repair and Maintenance Services | Heat Treating | Other | Total | |||||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||||||
| IHT | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| MS | |||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
For additional information on our reportable operating segments and geographic information, refer to Note 14 - Segment and Geographic Disclosures.
Remaining performance obligations. As permitted by ASC 606, Revenue from Contracts with Customers, we have elected not to disclose information about remaining performance obligations where (i) the performance obligation is part of a contract that has an original expected duration of one year or less or (ii) when we recognize revenue from the satisfaction of the performance obligation in accordance with the right-to-invoice practical expedient, which permits us to recognize revenue in the amount to which we have a right to invoice the customer if that amount corresponds directly with the value to the customer of our performance completed to date. As most of our contracts with customers are short-term in nature and billed on a time and
8
material basis, there were no material amounts of remaining performance obligations as of March 31, 2024 and December 31, 2023.
3. ACCOUNTS RECEIVABLE
A summary of accounts receivable as of March 31, 2024 and December 31, 2023 is as follows (in thousands):
| March 31, 2024 | December 31, 2023 | ||||||||||
| (unaudited) | |||||||||||
| Trade accounts receivable | $ | $ | |||||||||
| Unbilled revenues | |||||||||||
| Allowance for credit losses | ( | ( | |||||||||
| Total | $ | $ | |||||||||
The following table shows a rollforward of the allowance for credit losses (in thousands):
| March 31, 2024 | December 31, 2023 | ||||||||||
| (unaudited) | |||||||||||
| Balance at beginning of period | $ | $ | |||||||||
| Provision for expected credit losses | |||||||||||
| Recoveries collected | ( | ( | |||||||||
| Write-offs | ( | ( | |||||||||
| Foreign exchange effects | ( | ||||||||||
| Balance at end of period | $ | $ | |||||||||
4. INVENTORY
A summary of inventory as of March 31, 2024 and December 31, 2023 is as follows (in thousands):
| March 31, 2024 | December 31, 2023 | ||||||||||
| (unaudited) | |||||||||||
| Raw materials | $ | $ | |||||||||
| Work in progress | |||||||||||
| Finished goods | |||||||||||
| Total | $ | $ | |||||||||
5. PREPAID AND OTHER CURRENT ASSETS
A summary of prepaid expenses and other current assets as of March 31, 2024 and December 31, 2023 is as follows (in thousands):
| March 31, 2024 | December 31, 2023 | ||||||||||
| (unaudited) | |||||||||||
| Insurance receivable | $ | $ | |||||||||
| Prepaid expenses | |||||||||||
| Other current assets | |||||||||||
| Total | $ | $ | |||||||||
The insurance receivable relates to the receivables from our third-party insurance providers for a legal claim that is recorded in other accrued liabilities, refer to Note 8 - Other Accrued Liabilities. These receivables will be covered from our third-party insurance providers for litigation matters that have been settled, or are pending settlement, and where the deductibles have been satisfied. The prepaid expenses primarily relate to prepaid insurance and other expenses that have been paid in advance of the coverage period. Other current assets include other accounts receivables, primarily related to insurance rebates, software implementation costs, and deferred financing charges.
9
6. PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment as of March 31, 2024 and December 31, 2023 is as follows (in thousands):
| March 31, 2024 | December 31, 2023 | ||||||||||
| (unaudited) | |||||||||||
| Land | $ | $ | |||||||||
| Buildings and leasehold improvements | |||||||||||
| Machinery and equipment | |||||||||||
| Furniture and fixtures | |||||||||||
| Capitalized ERP system development costs | |||||||||||
| Computers and computer software | |||||||||||
| Automobiles | |||||||||||
| Construction in progress | |||||||||||
| Total | |||||||||||
| Accumulated depreciation | ( | ( | |||||||||
| Property, plant and equipment, net | $ | $ | |||||||||
Included in the table above are assets under finance leases of $8.9 million and $8.5 million, and related accumulated amortization of $3.5 million and $3.3 million as of March 31, 2024 and December 31, 2023, respectively. Depreciation expense for the three months ended March 31, 2024 and 2023 was $5.3 million and $5.6 million, respectively.
7. INTANGIBLE ASSETS
A summary of intangible assets as of March 31, 2024 and December 31, 2023 is as follows (in thousands):
| March 31, 2024 | |||||||||||||||||
| (unaudited) | |||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||||
| Customer relationships | $ | $ | ( | $ | |||||||||||||
| Trade names | ( | ||||||||||||||||
| Technology | ( | ||||||||||||||||
| Intangible assets | $ | $ | ( | $ | |||||||||||||
| December 31, 2023 | |||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||||
| Customer relationships | $ | $ | ( | $ | |||||||||||||
| Trade names | ( | ||||||||||||||||
| Technology | ( | ||||||||||||||||
| Licenses | ( | ||||||||||||||||
| Intangible assets | $ | $ | ( | $ | |||||||||||||
Amortization expense of intangible assets for the three months ended March 31, 2024 and 2023 was $3.1 million and $3.2 million, respectively.
The weighted-average amortization period for intangible assets subject to amortization was 13.8
10
8. OTHER ACCRUED LIABILITIES
A summary of other accrued liabilities as of March 31, 2024 and December 31, 2023 is as follows (in thousands):
| March 31, 2024 | December 31, 2023 | ||||||||||
| (unaudited) | |||||||||||
| Legal and professional accruals | $ | $ | |||||||||
| Payroll and other compensation expenses | |||||||||||
| Insurance accruals | |||||||||||
| Property, sales and other non-income related taxes | |||||||||||
| Accrued interest | |||||||||||
| Volume discount | |||||||||||
| Other accruals | |||||||||||
| Total | $ | $ | |||||||||
Legal and professional accruals include accruals for legal and professional fees as well as accrued legal claims. See Note 13 - Commitments and Contingencies for additional information. Certain legal claims are covered by our third-party insurance providers and the related insurance receivable for these claims is recorded in prepaid expenses and other current assets. See Note 5 - Prepaid and Other Current Assets for additional information. Payroll and other compensation expenses include all payroll related accruals including, among others, accrued vacation, severance, and bonuses. Insurance accruals primarily relate to accrued medical and workers compensation costs. Property, sales and other non-income related taxes include accruals for items such as sales and use tax, property tax, and other related tax accruals. Accrued interest relates to the interest accrued on our long-term debt. Other accruals include various business expense accruals.
9. INCOME TAXES
We recorded an income tax provision of $0.1 million for the three months ended March 31, 2024, compared to a provision of $0.9 million for the three months ended March 31, 2023. The effective tax rate, inclusive of discrete items, was a provision of 0.4 % for the three months ended March 31, 2024, compared to a provision of 3.6 % for the three months ended March 31, 2023. The effective tax rate differs from the statutory rate due to changes in valuation allowance in certain jurisdictions.
10. DEBT
As of March 31, 2024 and December 31, 2023, our total long-term debt and finance lease obligations are summarized as follows (in thousands):
| March 31, 2024 | December 31, 2023 | ||||||||||
| (unaudited) | |||||||||||
| 2022 ABL Credit Facility | $ | $ | |||||||||
ME/RE Loans1 | |||||||||||
Uptiered Loan1 | |||||||||||
Incremental Term Loan1 | |||||||||||
Equipment Finance Loan | |||||||||||
| Total | |||||||||||
| Finance lease obligations | |||||||||||
| Total long-term debt and finance lease obligations | |||||||||||
| Current portion of long-term debt and finance lease obligations | ( | ( | |||||||||
| Total long-term debt and finance lease obligations, less current portion | $ | $ | |||||||||
1 Comprised of principal amount outstanding, less unamortized discount and issuance costs. See below for additional information.
11
2022 ABL Credit Facility
On February 11, 2022, we entered into a credit agreement, with the lender parties thereto, and Eclipse Business Capital, LLC, a Delaware limited liability company, as agent, (the “ABL Agent”) (such agreement, as amended by Amendment No.1 dated as of May 6, 2022, Amendment No.2 dated as of November 1, 2022, Amendment No.3 dated as of June 16, 2023, and Amendment No.4 dated as of March 6, 2024, the “2022 ABL Credit Agreement”).
Available funding commitments under the 2022 ABL Credit Agreement, subject to certain conditions, include a revolving credit line in an amount of up to $130.0 million to be provided by certain affiliates of the ABL Agent (the “Revolving Credit Loans”), with a $35.0 million sublimit for swingline borrowings, a $26.0 million sublimit for issuances of letters of credit, and an incremental delayed draw term loan of up to $35.0 million (the “Delayed Draw Term Loan”) originally provided by Corre Partners Management, LLC (“Corre”) and certain of its affiliates (collectively, the “2022 ABL Credit Facility”).
The terms of the 2022 ABL Credit Facility are described in the table below (dollar amounts are presented in thousands):
| Revolving Credit Loans | Delayed Draw Term Loan | ||||||||||
| Original maturity date | 2/11/2025 | 2/11/2025 | |||||||||
| Amended maturity date | 8/11/2025 | 8/11/2025 | |||||||||
| Original stated interest rate | LIBOR + applicable margin (base + applicable margin 1) | LIBOR + | |||||||||
| Amended interest rate | SOFR + applicable margin (base + applicable margin 1) | SOFR + | |||||||||
| Actual interest rate: | |||||||||||
| 3/31/2024 | |||||||||||
| 3/31/2023 | |||||||||||
| Interest payments | monthly | monthly | |||||||||
| Cash paid for interest | |||||||||||
| YTD 3/31/2024 | $ | $ | |||||||||
| YTD 3/31/2023 | $ | $ | |||||||||
| Unamortized balance of deferred financing cost | |||||||||||
| 3/31/2024 | $ | $ | |||||||||
| 12/31/2023 | $ | $ | |||||||||
| Available amount at 3/31/2024 | $ | $ | |||||||||
1 Applicable margin ranges based on EBITDA as defined in the 2022 ABL Credit Agreement
The 2022 ABL Credit Agreement contains customary conditions to borrowings and covenants, as described in the 2022 ABL Credit Agreement, and further amended by Amendment No. 4, dated March 6, 2024. As of March 31, 2024, we are in compliance with the covenants.
As of March 31, 2024, $8.4 million in letters of credit were issued under the 2022 ABL Credit Agreement. Such amounts remain undrawn and are off-balance sheet.
ME/RE Loans
On June 16, 2023, we entered into ABL Amendment No. 3 which, in addition to making certain other changes to the 2022 ABL Credit Facility, provided us with $27.4 million of new term loans (the “ME/RE Loans”). Amounts repaid or prepaid under the ME/RE Loans may not be reborrowed.
The terms of ME/RE Loans are described in the table below (dollar amounts are presented in thousands):
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Maturity date | 8/11/2025 | |||||||
Stated interest rate | SOFR + | |||||||
| Principal payments | $ | |||||||
| Effective interest rate | ||||||||
3/31/20241 | ||||||||
| 3/31/2023 | N/A | |||||||
| Actual interest rate | ||||||||
| 3/31/2024 | ||||||||
| 3/31/2023 | N/A | |||||||
| Interest payments | monthly | |||||||
| Cash paid for interest | ||||||||
| YTD 3/31/2024 | $ | |||||||
| YTD 3/31/2023 | N/A | |||||||
| Balances at 3/31/2024 | ||||||||
| Principal balance | $ | |||||||
| Unamortized balance of debt issuance cost | $( | |||||||
| Net carrying balance | $ | |||||||
| Available amount at 3/31/2024 | $ | |||||||
1 The effective interest rate as of March 31, 2024, consisted of a 11.19 % variable interest rate paid in cash and an additional 6.19 % due to amortization of the related debt issuance costs.
The ME/RE Loans are governed by the 2022 ABL Credit Agreement and are subject to the same restrictive covenants as described under the 2022 ABL Credit Facility.
Amended and Restated Term Loan Credit Agreement - Uptiered Loan and Incremental Term Loan
On June 16, 2023, we entered into an amendment and restatement of that certain subordinated term loan credit agreement dated as of November 9, 2021 (such agreement, as amended and restated, and as further amended by Amendment No.1 dated March 6, 2024, the “A&R Term Loan Credit Agreement”) among the Company, as borrower, the guarantors party thereto, the lenders from time-to-time party thereto and Cantor Fitzgerald Securities, as agent (the “A&R Term Loan Agent”). The A&R Term Loan Credit Agreement included a term loan credit agreement entered into on November 9, 2021, as amended through March 29, 2023 (the “Uptiered Loan”), and an additional funding commitment, subject to certain conditions, consisting of a $57.5 million senior secured first lien term loan (the “Incremental Term Loan”) provided by Corre and certain of its affiliates, comprised of a $37.5 million term loan tranche and a $20.0 million delayed draw tranche.
The A&R Term Loan Credit Agreement contains certain customary conditions to borrowings, events of default and affirmative, negative, and financial covenants (as described in the A&R Term Loan Credit Agreement and further amended by Amendment No. 4 dated March 6, 2024). As of March 31, 2024, we are in compliance with the A&R Term Loan Credit Agreement covenants.
The terms of Uptiered Loan and Incremental Term Loan are described in the table below (dollar amounts are presented in thousands):
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Uptiered Loan | Incremental Term Loan | ||||||||||
| Maturity date | 12/31/2027 (12/31/2026 if outstanding balance is greater than $ | 12/31/2026 | |||||||||
| Stated interest rate | |||||||||||
| 3/31/2024 | |||||||||||
| 3/31/2023 | |||||||||||
| Principal payments | at maturity | $ | |||||||||
Effective interest rate | |||||||||||
| 3/31/2024 | 14.56% 3 | 22.96% 4 | |||||||||
| 3/31/2023 | 30.32% 3 | N/A | |||||||||
| Interest payments | cash quarterly/PIK monthly | quarterly | |||||||||
| Cash paid for interest | |||||||||||
| YTD 3/31/2024 | $ | $ | |||||||||
| YTD 3/31/2023 | $ | N/A | |||||||||
| PIK interest added to principal | |||||||||||
| YTD 3/31/2024 | $ | $ | |||||||||
| YTD 3/31/2023 | $ | N/A | |||||||||
| Balances at 3/31/2024 | |||||||||||
Principal balance 1 | $ | $ | |||||||||
| Unamortized balance of debt issuance cost | $( | $( | |||||||||
| Net carrying balance | $ | $ | |||||||||
| Balances at 12/31/2023 | |||||||||||
Principal balance 1 | $ | $ | |||||||||
| Unamortized balance of debt issuance cost | $( | $( | |||||||||
| Net carrying balance | $ | $ | |||||||||
| Available amount at 3/31/2024 | $ | $ | |||||||||
___________
1 The principal balance of the Uptiered Loan is made up of $22.5 million drawn on November 9, 2021, $27.5 million drawn on December 8, 2021, and $57.0 million added as part of the exchange agreement on October 4, 2022. In addition, the principal balance also includes PIK interest recorded to date of $25.3 million and $22.2 million as of March 31, 2024 and December 31, 2023, respectively, and PIK fees of $0.9 million incurred as of December 31, 2022.
2 Cash and PIK split is based on the Net Leverage Ratio as defined in the A&R Term Loan Credit Agreement. Cash interest rate increased by 1.5 % on January 31, 2024.
3 The effective interest rate on the Uptiered Loan as of March 31, 2024 consisted of a 13.50 % stated interest rate paid in PIK and cash and an additional 1.06 % due to the amortization of the related debt issuance costs. The effective interest rate on the Uptiered Loan as of March 31, 2023 consisted of a 12.00 % stated interest rate paid in PIK and an additional 18.32 % due to the acceleration of the amortization of the related debt issuance costs.
4 The effective interest rate on the Incremental Term Loan as of March 31, 2024 consisted of a 12.00 % stated interest rate paid in cash and an additional 10.96 % due to the amortization of the related debt issuance costs.
Warrants
As of March 31, 2024 and December 31, 2023, APSC Holdco II, L.P. held 500,000 500,000 15.00
The exercise price and the number of shares of our common stock issuable on exercise of the warrants are subject to certain antidilution adjustments, including for stock dividends, stock splits, reclassifications, noncash distributions, cash dividends, certain equity issuances and business combination transactions. The warrants can be exercised by rendering cash or by means of a cashless option as set forth in the agreement.
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Equipment Finance Loan
On March 6, 2024, we entered into agreements to sell various equipment to an equipment finance lender for $2.9 million and lease the equipment for monthly payments of $181 thousand over 18 months. The lease agreement provides for a bargain purchase option at the end of the lease term which we intend to exercise. The Company determined that the transaction did not meet the criteria for sale-leaseback in accordance with ASC 842, Leases and accounted for this arrangement as an equipment financing. The assets subject to the transaction remain on our balance sheet and continue to depreciate in accordance with our depreciation policy.
Fair Value of Debt
The fair value of our debt obligations is representative of the carrying value based upon the respective interest rate terms and management’s opinion that the current rates available to us with the same maturity and security structure are equivalent to that of the debt obligations.
1970 Group Substitute Insurance Reimbursement Facility
On September 29, 2022, we entered into the Substitute Insurance Reimbursement Facility Agreement with 1970 Group Inc. (“1970 Group”) (as amended by that certain first amendment thereto dated August 29, 2023, the “Substitute Insurance Reimbursement Facility Agreement”). Under the Substitute Insurance Reimbursement Facility Agreement, the 1970 Group extended credit to us in the form of a substitute reimbursement facility (the “Substitute Reimbursement Facility”) to provide up to approximately $22.9 million of letters of credit on our behalf in support of our workers’ compensation, commercial automotive and general liability insurance policies. As of March 31, 2024, we have $22.9 million of letters of credit outstanding under the Substitute Reimbursement Facility.
According to the provisions of ASC 470, Debt, the arrangement is a “Substitute Insurance Reimbursement Facility” limited to the amounts drawn under the letters of credit. Therefore, until we use or draw on such Substitute Insurance Reimbursement Facility, the letters of credit are treated as an off-balance sheet credit arrangement. The fees paid by us periodically under this arrangement are deferred and amortized to interest expense over the term of the arrangement. As of March 31, 2024, the unamortized balance of $0.7 million of deferred fees was included in other current assets.
Liquidity
As of March 31, 2024, we had $19.2 million of unrestricted cash and cash equivalents and $5.0 million of restricted cash, including $3.4 million of restricted cash held as collateral for letters of credit and commercial card programs. International cash balances as of March 31, 2024 were $8.2 million, and approximately $0.7 million of such cash is located in countries where currency or regulatory restrictions exist. As of March 31, 2024, we had approximately $16.7 million of available borrowing capacity under our various credit agreements, consisting of $6.7 million available under the Revolving Credit Loans and $10.0 33.9 million in letters of credit and $2.4 million in surety bonds outstanding and $0.6 million in miscellaneous cash deposits securing other required obligations. As of December 31, 2023, our cash and cash equivalents consisted of $30.4 million of unrestricted cash and cash equivalents and $5.0 million of restricted cash, including $3.4 million of restricted cash held as collateral for letters of credit and commercial card programs. International cash balances as of December 31, 2023 were $12.0 million, including $0.6 million of cash located in countries where currency or regulatory restrictions existed.
11. EMPLOYEE BENEFIT PLANS
We have a defined benefit pension plan covering certain United Kingdom employees (the “U.K. Plan”). Net periodic pension credit includes the following components (in thousands):
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| (unaudited) | (unaudited) | ||||||||||
| Interest cost | $ | $ | |||||||||
| Expected return on plan assets | ( | ( | |||||||||
| Amortization of prior service cost | |||||||||||
Unrecognized net actuarial loss | |||||||||||
| Net periodic pension credit | $ | ( | $ | ( | |||||||
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Net pension credit is included in “Other income, net” on our condensed consolidated statement of operations. The expected long-term rate of return on invested assets is determined based on the weighted average of expected returns on asset investment categories for the U.K. Plan as follows: 5.5 % overall, 8.5 % for equities and 5.0 % for debt securities.
12. SHAREHOLDERS’ EQUITY
Shareholder’s Equity and Preferred Stock
As of March 31, 2024 there were 4,415,201 12,000,000 0.30
As of March 31, 2024 we had 500,000 none
Accumulated Other Comprehensive Income (loss)
A summary of changes in accumulated other comprehensive loss included within shareholders’ equity is as follows (in thousands):
| Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||
| (unaudited) | (unaudited) | ||||||||||||||||||||||||||||||||||||||||||||||
| Foreign Currency Translation Adjustments | Defined Benefit Pension Plans | Tax Provision | Total | Foreign Currency Translation Adjustments | Defined Benefit Pension Plans | Tax Provision | Total | ||||||||||||||||||||||||||||||||||||||||
Balance, beginning of period | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Balance, end of period | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||||||||||||||||||
13. COMMITMENTS AND CONTINGENCIES
Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company, which will only be resolved when one or more future events occur or fail to occur. Team’s management and its legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against us or unasserted claims that may result in such proceedings, Team’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in our financial statements. If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the nature of the guarantee would be disclosed.
We accrue for contingencies where the occurrence of a material loss is probable and can be reasonably estimated, based on our best estimate of the expected liability. We may increase or decrease our legal accruals in the future, on a matter-by-matter basis, to account for developments in such matter. Because such matters are inherently unpredictable and unfavorable developments or outcomes can occur, assessing contingencies is highly subjective and requires judgments about future events. Notwithstanding the uncertainty as to the outcome and while our insurance coverage might not be available or adequate to cover these claims, based upon the information currently available, we do not believe that any uninsured losses that might arise from these lawsuits and proceedings will have a materially adverse effect on our condensed consolidated financial statements.
Kelli Most Litigation - On November 13, 2018, Kelli Most filed a lawsuit against Team Industrial Services, Inc., individually and as a personal representative of the estate of Jesse Henson, in the 268th District Court of Fort Bend County, Texas (the “Most litigation”). The complaint asserted claims against Team for negligence resulting in the wrongful death of Jesse Henson. A jury trial commenced on this matter on May 4, 2021. On June 1, 2021, the jury rendered a verdict against Team for $222.0 million in compensatory damages.
On January 25, 2022, the trial court signed a final judgment in favor of the plaintiff and against Team Industrial Services, Inc. Post-judgment motions challenging the judgment were filed on February 24, 2022 and were denied by the trial court on
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April 22, 2022. We believe the jury verdict is not supported by the facts of the case or applicable law, is the result of significant trial error, and that there are strong grounds for appeal. We appealed the trial court’s judgment to the Texas First Court of Appeals by timely filing a notice of appeal on April 25, 2022, and filed our initial appellate brief on December 23, 2022.
We believe that the likelihood that the amount of the judgment will be affirmed is not probable. We currently estimate a range of possible outcomes between $13.0 million and approximately $51.0 million, and we have accrued a liability of $39.0 million as of March 31, 2024 which is the amount we believe is the most likely estimate for a probable loss on this matter. We have also recorded a related receivable from our third-party insurance providers in other current assets with a corresponding liability of the same amount in other accrued liabilities. Such amounts are treated as non-cash operating activities. The Most litigation is covered by our general liability and excess insurance policies which are occurrence based and subject to an aggregate $3.0 million self-insured retention and deductible. All retentions and deductibles have been met, and accordingly, we believe pending the final settlement, all further claims will be fully funded by our insurance policies. We will continue to evaluate the possible outcomes of this case in light of future developments and their potential impact on factors relevant to our assessment of any possible loss.
Notice of repayment of pandemic related government subsidies - In response to widespread health crises, epidemics and pandemics, certain of our entities based in foreign jurisdictions received governmental funding assistance to compensate for a portion of employee wages between March 2020 and March 2022. Following ongoing compliance reviews of these funding assistance programs, we received notices stating noncompliance with the requirements of these funding assistance programs. Accordingly, based on the assessments completed by the government appointed administrative authority, we have accrued $5.5 million, to be repaid over an extended period, as of March 31, 2024.
Accordingly, for all matters discussed within this Note 13 - Commitments and Contingencies, we have accrued in the aggregate approximately $44.6 million as of March 31, 2024, of which approximately $5.6 million is not covered by our various insurance policies.
In addition to legal matters discussed above, we are subject to various lawsuits, claims and proceedings encountered in the normal conduct of business (“Other Proceedings”). Management believes that based on its current knowledge and after consultation with legal counsel that the Other Proceedings, individually or in the aggregate, will not have a material effect on our condensed consolidated financial statements.
14. SEGMENT AND GEOGRAPHIC DISCLOSURES
ASC 280, Segment Reporting, requires us to disclose certain information about our operating segments. Operating segments are defined as “components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.” We conduct operations in two segments: IHT and MS.
Segment data for our two operating segments are as follows (in thousands):
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| (unaudited) | (unaudited) | ||||||||||
| Revenues: | |||||||||||
| IHT | $ | $ | |||||||||
| MS | |||||||||||
Total revenues | $ | $ | |||||||||
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| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| (unaudited) | (unaudited) | ||||||||||
| Operating income (loss): | |||||||||||
| IHT | $ | $ | |||||||||
| MS | |||||||||||
| Corporate and shared support services | ( | ( | |||||||||
Total operating loss | $ | ( | $ | ( | |||||||
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| (unaudited) | (unaudited) | ||||||||||
Capital expenditures1: | |||||||||||
| IHT | $ | $ | |||||||||
| MS | |||||||||||
| Corporate and shared support services | |||||||||||
Total capital expenditures | $ | $ | |||||||||
____________
1 Excludes finance leases. Capital expenditures presented in the table above are on accrual basis and differ from the amounts presented in the condensed consolidated statements of cash flows.
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| (unaudited) | (unaudited) | ||||||||||
| Depreciation and amortization: | |||||||||||
| IHT | $ | $ | |||||||||
| MS | |||||||||||
| Corporate and shared support services | |||||||||||
Total depreciation and amortization | $ | $ | |||||||||
Separate measures of our assets by operating segment are not produced or utilized by management to evaluate segment performance. A geographic breakdown of our revenues for the three months ended March 31, 2024 and 2023 is as follows (in thousands):
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| (unaudited) | (unaudited) | ||||||||||
Total Revenues1 | |||||||||||
| United States | $ | $ | |||||||||
| Canada | |||||||||||
| Europe | |||||||||||
| Other foreign countries | |||||||||||
| Total | $ | $ | |||||||||
______________
1 Revenues attributable to individual countries/geographic areas are based on the country of domicile of the legal entity that performs the work.
15. RELATED PARTY TRANSACTIONS
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16. SUBSEQUENT EVENTS
As of May 14, 2024, the filing date of this Quarterly Report on Form 10-Q, management evaluated the existence of events occurring subsequent to the quarter ended March 31, 2024 and determined that there were no events or transactions that would have a material impact on the Company’s results of operations or financial position.
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| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | ||||
Overview
Unless otherwise indicated, the terms “Team, Inc.,” “Team,” “the Company,” “we,” “our” and “us” are used in this report to refer to Team, Inc., to one or more of our consolidated subsidiaries, or to all of them taken as a whole. Our stock is traded on the New York Stock Exchange (the “NYSE”) under the symbol “TISI”.
The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included in this report, and in conjunction with our Annual Report on Form 10-K and other documents previously filed with the SEC. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those described in more detail under the heading “Risk Factors” included in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K. See also “Cautionary Note Regarding Forward-Looking Statements” below.
Cautionary Note Regarding Forward-Looking Statements.
This report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In addition, other written or oral statements that constitute forward-looking statements may be made by us or on our behalf in other materials we release to the public including all statements, other than statements of historical facts, included or incorporated by reference in this Quarterly Report on Form 10-Q, that address activities, events or developments which we expect or anticipate will or may occur in the future. You can generally identify our forward-looking statements by the words “anticipate,” “believe,” “expect,” “plan,” “intend,” “estimate,” “project,” “projection,” “predict,” “budget,” “forecast,” “goal,” “guidance,” “target,” “will,” “could,” “should,” “may” and similar expressions.
We based our forward-looking statements on our reasonable beliefs and assumptions, and our current expectations, estimates and projections about ourselves and our industry. We caution that these statements are not guarantees of future performance and involve risks, uncertainties and assumptions about events and circumstances that we cannot predict. In addition, we based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. New risk factors emerge from time to time, and it is not possible for us to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Accordingly, forward-looking statements cannot be relied upon as a guarantee of future results and involve a number of risks and uncertainties that could cause actual results to differ materially from those projected in the statements, including, but not limited to the statements under “Risk Factors” included in Part I, Item 1A of our Annual Report on Form 10-K and in Part II, Item 1A of this Quarterly Report on Form 10-Q. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law.
There are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements contained in this report. Such risks, uncertainties and other important factors include, among others, risks related to:
•our ability to generate sufficient cash from operations, access our 2022 ABL Credit Facility or amounts available under our Delayed Draw Term Loan to support our operations, or maintain our compliance with covenants under our debt arrangements including our 2022 ABL Credit Agreement and A&R Term Loan Credit Agreement;
•our ability to manage inflationary pressures in our operating costs;
•negative market conditions, including domestic and global inflationary pressures, future economic uncertainties, and impacts from epidemics and pandemics, particularly in industries in which we are heavily dependent;
•delays in the commencement of major projects;
•seasonal and other variations, such as severe weather conditions (including conditions influenced by climate change) and the nature of our clients’ industry;
•our ability to expand into new markets (including low carbon energy transition) and attract clients in new industries may be limited due to our competition’s breadth of service offerings and intellectual property;
•our significant debt and high leverage which could have a negative impact on our financing options, liquidity position and ability to manage increases in interest rates;
•our ability to access capital and liquidity provided by the financial and capital markets;
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•the timing of new client contracts and termination of existing contracts may result in unpredictable fluctuations in our cash flows and financial results;
•risk of non-payment and/or delays in payment of receivables from our clients;
•our ability to regain compliance with the NYSE’s continued listing requirements and rules, and the risk that the NYSE may delist our common stock, which could negatively affect our company, the price of our common stock and our shareholders’ ability to sell our common stock in the event we are unable to list our common stock on another exchange;
•our financial forecasts being based upon estimates and assumptions that may materially differ from actual results;
•our incurrence of liabilities and suffering of negative financial or reputational impacts relating to occupational health and safety matters;
•our ability to continue as a going concern;
•changes in laws or regulations in the local jurisdictions that we conduct our business;
•the inherently uncertain outcome of current and future litigation; and
•acts of terrorism, war or political or civil unrest in the United States or elsewhere, changes in laws and regulations, or the imposition of economic or trade sanctions affecting international commercial transactions.
GENERAL OVERVIEW
Business. We are a global, leading provider of specialty industrial services offering clients access to a full suite of conventional, specialized, and proprietary mechanical, heat-treating, and inspection services. We deploy conventional to highly specialized inspection, condition assessment, maintenance and repair services that result in greater safety, reliability, and operational efficiency for our clients’ most critical assets. We conduct operations in two segments: IHT and MS. Through the capabilities and resources in these two segments, we believe that we are uniquely qualified to provide integrated solutions involving: inspection to assess condition; engineering assessment to determine fitness for purpose in the context of industry standards and regulatory codes; and mechanical services to repair, rerate or replace based upon the client’s election. In addition, we are capable of escalating with the client’s needs, as dictated by the severity of the damage found and the related operating conditions, from standard services to some of the most advanced services and integrated asset integrity and reliability management solutions available in the industry. We also believe that we are unique in our ability to provide these services in three distinct client demand profiles: (i) turnaround or project services, (ii) call-out services, and (iii) nested or run-and-maintain services.
IHT provides conventional and advanced non-destructive testing services primarily for the process, pipeline and power sectors, pipeline integrity management services, and field heat treating services, as well as associated engineering and condition assessment services. These services can be offered while facilities are running (on-stream), during facility turnarounds or during new construction or expansion activities. In addition, IHT provides comprehensive non-destructive testing services and metallurgical and chemical processing services to the aerospace industry, covering a range of components including finished machined and in-service components. IHT also provides advanced digital imaging including remote digital video imaging.
MS provides solutions designed to serve clients’ unique needs during both the operational (onstream) and off-line states of their assets. Our onstream services include our range of standard to custom-engineered leak repair and composite solutions; emissions control and compliance; hot tapping and line stopping; and on-line valve insertion solutions, which are delivered while assets are in an operational condition, which maximizes client production time. Asset shutdowns can be planned, such as a turnaround maintenance event, or unplanned, such as those due to component failure or equipment breakdowns. Our specialty maintenance, turnaround and outage services are designed to minimize client downtime and are primarily delivered while assets are off-line and often through the use of cross-certified technicians, whose multi-craft capabilities deliver the production needed to achieve tight time schedules. These critical services include on-site field machining; bolted-joint integrity; vapor barrier plug testing; and valve management solutions.
We market our services to companies in a diverse array of heavy industries which include:
•Energy (refining, power, renewables, nuclear, offshore oil and gas, and liquefied natural gas);
•Manufacturing and Process (chemical, petrochemical, pulp and paper industries, automotive, and mining);
•Midstream (valves, terminals and storage, and pipeline);
•Public Infrastructure (construction and building, roads, dams, amusement parks, bridges, ports, and railways); and
•Aerospace and Defense.
Recent Developments. On March 14, 2024, we received a written notice from the NYSE that we are not in compliance with the continued listing standards set forth in Rule 802.01B of the NYSE Listed Company Manual because our average global
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market capitalization over a consecutive 30 trading-day period was less than $50.0 million and, at the same time, our last reported shareholders’ equity was less than $50.0 million.
As required by the NYSE, we timely notified the NYSE of our intent to cure the deficiency and restore our compliance with the NYSE continued listing standards. In accordance with applicable NYSE procedures, we have 45 days from receipt of the notice to submit a plan advising the NYSE of the definitive action(s) we have taken, or are taking, that would bring us into compliance with the minimum global market capitalization listing standard within 12 months of receipt of the written notice. On April 29, 2024, we submitted a plan to bring us into compliance with the NYSE continued listing standards within the required timeframe. The NYSE will review the plan and, within 45 days of its receipt, determine whether we have made a reasonable demonstration of our ability to conform to the relevant standards in the 12-month period. If the NYSE accepts the plan, our common stock will continue to be listed and traded on the NYSE during the 12-month period, subject to our compliance with other NYSE continued listing standards and continued periodic review by the NYSE of our progress with respect to the plan.
The notice has no immediate impact on the listing of the Company’s common stock, which will continue to trade on the NYSE during the applicable cure period, and does not result in a default under the Company's material debt or other agreements. The Company is considering all available options to regain compliance with the NYSE continued listing standards. The Company can provide no assurances that it will be able to satisfy any of the steps outlined above and maintain the listing of its shares on the NYSE.
Market Conditions Update. Oil and gas prices trended upward toward the end of the first quarter of 2024, reflecting heightened geopolitical tensions amid supply-demand tightening, although slower demand growth is currently expected for the remainder of the year. Oil and gas price volatility may impact the current and future spending on our services by our clients. The future impacts to our business from potentially higher interest rates, persistent global and domestic inflation, geopolitical unrest especially in the Middle East, and volatility in global supply chains cannot be predicted. See Item 1A “Risk Factors” in our Annual Report on Form 10-K for additional information.
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RESULTS OF OPERATIONS
Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023
The following is a comparison of our results of operations for the three months ended March 31, 2024 to the three months ended March 31, 2023 (in thousands).
| Three Months Ended March 31, | Increase (Decrease) | ||||||||||||||||||||||
| 2024 | 2023 | $ | % | ||||||||||||||||||||
| (unaudited) | (unaudited) | ||||||||||||||||||||||
| Revenues by business segment: | |||||||||||||||||||||||
| IHT | $ | 99,448 | $ | 101,829 | $ | (2,381) | (2.3) | % | |||||||||||||||
| MS | 100,152 | 100,448 | (296) | (0.3) | % | ||||||||||||||||||
| Total revenues | $ | 199,600 | $ | 202,277 | $ | (2,677) | (1.3) | % | |||||||||||||||
| Operating income (loss): | |||||||||||||||||||||||
| IHT | $ | 5,185 | $ | 4,723 | $ | 462 | 9.8 | % | |||||||||||||||
| MS | 4,091 | 3,193 | 898 | 28.1 | % | ||||||||||||||||||
| Corporate and shared support services | (15,662) | (15,662) | — | — | % | ||||||||||||||||||
| Total operating loss | $ | (6,386) | $ | (7,746) | $ | 1,360 | 17.6 | % | |||||||||||||||
| Interest expense, net | $ | (12,098) | $ | (16,741) | $ | 4,643 | 27.7 | % | |||||||||||||||
| Other income, net | 1,362 | 635 | 727 | 114.5 | % | ||||||||||||||||||
| Loss before income taxes | $ | (17,122) | $ | (23,852) | $ | 6,730 | 28.2 | % | |||||||||||||||
| Provision for income taxes | (73) | (859) | 786 | 91.5 | % | ||||||||||||||||||
| Net loss | $ | (17,195) | $ | (24,711) | $ | 7,516 | 30.4 | % | |||||||||||||||
Revenues. Total revenues decreased $2.7 million or 1.3% from the prior year period. Revenues were positively impacted by $0.6 million from favorable foreign exchange movements during the three-month period ended March 31, 2024. IHT segment year-to-date revenue decreased 2.3%, compared to the prior year period, primarily driven by decreased call out and turnaround activities in the U.S. and Canada regions, partially offset by an increase in Aerospace activity. MS segment revenue decreased 0.3% compared to the prior year period, mainly due to a $4.3 million decrease in Canada operations attributable to projects from the 2023 period that did not repeat in the 2024 period; mostly offset by a $1.2 million increase in U.S. operations and a $2.8 million increase in other international operations primarily attributable to higher nested and turnaround activity.
Operating income (loss). Overall operating loss was $6.4 million in the current year, a $1.4 million or 17.6% improvement as compared to an operating loss of $7.7 million in the prior year. IHT operating income increased by $0.5 million or 9.8%, primarily driven by lower direct costs and improved margins. MS operating income increased by $0.9 million or 28.1% as compared to the prior year period. MS operating income from the U.S., and other international operations increased by $1.9 million, and $0.6 million, respectively, driven by higher activity and improved margins, partially offset by a decrease of $1.6 million in Canada, primarily driven by non-repeating projects in the prior year. Corporate operating loss remained consistent with the prior year period. We continue to experience cost inflation in several areas across all segments, such as raw materials, transportation, and labor costs.
For the three months ended March 31, 2024 and 2023, operating loss includes net expenses totaling $2.6 million and $2.0 million, respectively, that we do not believe are indicative of our core operating activities, as detailed in the table below (in thousands):
23
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Operating loss | $ | (6,386) | $ | (7,746) | |||||||
| Professional fees and other | 2,081 | 1,721 | |||||||||
| Legal costs | 82 | — | |||||||||
| Severance charges, net | 425 | 305 | |||||||||
| Total non-core expenses | 2,588 | 2,026 | |||||||||
Operating loss, excluding non-core expenses | $ | (3,798) | $ | (5,720) | |||||||
Excluding the impact of these identified non-core items in both periods, operating loss decreased by $1.9 million, from a loss of $5.7 million to a loss of $3.8 million. See our non-GAAP reconciliation for additional details of our non-core expenses.
Interest expense, net. Interest expense, net decreased by $4.6 million from the prior year period. The decrease was primarily due to elimination of accelerated amortization of debt issuance costs, and reduction in outstanding debt balance due to payoff of the remaining balance on the Atlantic Park Strategic Capital Fund, L.P. term loan in June 2023 and full payoff of the convertible debt in August 2023. These decreases were partially offset by interest expense incurred on the ME/RE Loans and the Incremental Term Loan entered in June 2023, increase in interest expense on the 2022 ABL Credit Facility due to higher interest rates and increase in the paid-in-kind (“PIK”) interest on the Uptiered Loan.
Cash interest paid for the three months ended March 31, 2024 and 2023 was $5.9 million and $5.2 million, respectively.
Other income, net. Other income increased by $0.7 million from the prior year period primarily due to a higher gain on foreign currency transactions in the current year period.
Taxes. The provision for income tax was $0.1 million on the pre-tax loss of $17.1 million in the current year-to-date period compared to income tax expense of $0.9 million on the pre-tax loss of $23.9 million in the prior year-to-date period. The effective tax rate was a provision of 0.4% for the three months ended March 31, 2024, compared to a provision of 3.6% for the three months ended March 31, 2023. The effective tax rate differs from the prior year period due to changes in valuation allowance.
24
Non-GAAP Financial Measures and Reconciliations
We use supplemental non-GAAP financial measures which are derived from the consolidated financial information including adjusted net income (loss); adjusted net income (loss) per share; earnings before interest and taxes (“EBIT”); adjusted EBIT; adjusted earnings before interest, taxes, depreciation, and amortization (“adjusted EBITDA”) and free cash flow to supplement financial information presented on a GAAP basis.
We define adjusted net income (loss) and adjusted net income (loss) per share to exclude the following items: non-routine legal costs and settlements, non-routine professional fees, (gain) loss on debt extinguishment, certain severance charges, non-routine write off of assets and certain other items that we believe are not indicative of core operating activities. Consolidated adjusted EBIT, as defined by us, excludes the costs excluded from adjusted net income (loss) as well as income tax expense (benefit), interest charges, foreign currency (gain) loss, pension credit, and items of other (income) expense. Consolidated adjusted EBITDA further excludes from consolidated adjusted EBIT depreciation, amortization, and non-cash share-based compensation costs. Segment adjusted EBIT is equal to segment operating income (loss) excluding costs associated with non-routine legal costs and settlements, non-routine professional fees, certain severance charges, and certain other items as determined by us. Segment adjusted EBITDA further excludes from segment adjusted EBIT depreciation, amortization, and non-cash share-based compensation costs. Free cash flow is defined as net cash provided by (used in) operating activities minus capital expenditures.
We believe these non-GAAP financial measures are useful to both management and investors in their analysis of our financial position and results of operations. In particular, adjusted net income (loss), adjusted net income (loss) per share, consolidated adjusted EBIT, and consolidated adjusted EBITDA are meaningful measures of performance which are commonly used by industry analysts, investors, lenders, and rating agencies to analyze operating performance in our industry, perform analytical comparisons, benchmark performance between periods, and measure our performance against externally communicated targets. Our segment adjusted EBIT and segment adjusted EBITDA are also used as a basis for the Chief Operating Decision Maker (Chief Executive Officer) to evaluate the performance of our reportable segments. Free cash flow is used by our management and investors to analyze our ability to service and repay debt and return value directly to stakeholders.
Non-GAAP measures have important limitations as analytical tools because they exclude some, but not all, items that affect net earnings and operating income. These measures should not be considered substitutes for their most directly comparable U.S. GAAP financial measures and should be read only in conjunction with financial information presented on a GAAP basis. Further, our non-GAAP financial measures may not be comparable to similarly titled measures of other companies who may calculate non-GAAP financial measures differently, limiting the usefulness of those measures for comparative purposes. The liquidity measure of free cash flow does not represent a precise calculation of residual cash flow available for discretionary expenditures. Reconciliations of each non-GAAP financial measure to its most directly comparable GAAP financial measure are presented below.
The following tables set forth the reconciliation of Adjusted Net Income (Loss), EBIT and EBITDA to their most comparable GAAP financial measurements on a consolidated and segmented basis:
25
| TEAM, INC. AND SUBSIDIARIES | ||||||||||||||
| RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (Continued) | ||||||||||||||
| (unaudited, in thousands) | ||||||||||||||
| Three Months Ended March 31, | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| Adjusted Net Loss: | ||||||||||||||
| Net loss | $ | (17,195) | $ | (24,711) | ||||||||||
Professional fees and other1 | 2,081 | 1,721 | ||||||||||||
Legal costs | 82 | — | ||||||||||||
Severance charges, net2 | 425 | 305 | ||||||||||||
Tax impact of adjustments and other net tax items3 | (112) | (78) | ||||||||||||
| Adjusted Net Loss | $ | (14,719) | $ | (22,763) | ||||||||||
| Adjusted Net Loss per common share: | ||||||||||||||
Basic and Diluted | $ | (3.33) | $ | (5.24) | ||||||||||
| Consolidated Adjusted EBIT and Adjusted EBITDA: | ||||||||||||||
| Net loss | $ | (17,195) | $ | (24,711) | ||||||||||
| Provision for income taxes | 73 | 859 | ||||||||||||
Gain on equipment sale | (10) | (303) | ||||||||||||
| Interest expense, net | 12,098 | 16,741 | ||||||||||||
Professional fees and other1 | 2,081 | 1,721 | ||||||||||||
Legal costs | 82 | — | ||||||||||||
Severance charges, net2 | 425 | 305 | ||||||||||||
| Foreign currency gain | (1,239) | (177) | ||||||||||||
Pension credit4 | (113) | (156) | ||||||||||||
| Consolidated Adjusted EBIT | (3,798) | (5,721) | ||||||||||||
| Depreciation and amortization | ||||||||||||||
| Amount included in operating expenses | 3,583 | 3,719 | ||||||||||||
| Amount included in SG&A expenses | 6,057 | 5,827 | ||||||||||||
| Total depreciation and amortization | 9,640 | 9,546 | ||||||||||||
| Non-cash share-based compensation costs | 665 | 382 | ||||||||||||
| Consolidated Adjusted EBITDA | $ | 6,507 | $ | 4,207 | ||||||||||
| Free Cash Flow: | ||||||||||||||
| Cash provided by (used in) operating activities | $ | 1,886 | $ | (17,763) | ||||||||||
| Capital expenditures | (3,016) | (2,692) | ||||||||||||
| Free Cash Flow | $ | (1,130) | $ | (20,455) | ||||||||||
____________________________________
1 For the three months ended March 31, 2024, includes $1.9 million related to debt financing, and $0.2 million related to support costs. For the three months ended March 31, 2023, includes $1.7 million related to costs associated with corporate support.
2 Represents customary severance costs associated with staff reductions.
3 Represents the tax effect of the adjustments.
4 Represents pension credits for the U.K. pension plan based on the difference between the expected return on plan assets and the cost of the discounted pension liability. The pension plan was frozen in 1994 and no new participants have been added since that date.
26
| TEAM, INC. AND SUBSIDIARIES | ||||||||||||||
| RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (Continued) | ||||||||||||||
| (unaudited, in thousands) | ||||||||||||||
| Three Months Ended March 31, | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| Segment Adjusted EBIT and Adjusted EBITDA: | ||||||||||||||
| IHT | ||||||||||||||
| Operating income | $ | 5,185 | $ | 4,723 | ||||||||||
Severance charges, net1 | 95 | 40 | ||||||||||||
Professional fees and other2 | 40 | — | ||||||||||||
| Adjusted EBIT | 5,320 | 4,763 | ||||||||||||
| Depreciation and amortization | 3,029 | 3,054 | ||||||||||||
| Adjusted EBITDA | $ | 8,349 | $ | 7,817 | ||||||||||
| MS | ||||||||||||||
| Operating income | $ | 4,091 | $ | 3,193 | ||||||||||
Severance charges, net1 | 325 | 256 | ||||||||||||
Professional fees and other2 | 82 | 20 | ||||||||||||
| Adjusted EBIT | 4,498 | 3,469 | ||||||||||||
| Depreciation and amortization | 4,649 | 4,753 | ||||||||||||
| Adjusted EBITDA | $ | 9,147 | $ | 8,222 | ||||||||||
| Corporate and shared support services | ||||||||||||||
| Net loss | $ | (26,471) | $ | (32,627) | ||||||||||
| Provision for income taxes | 73 | 859 | ||||||||||||
| Gain on equipment sale | (10) | (303) | ||||||||||||
| Interest expense, net | 12,098 | 16,741 | ||||||||||||
| Foreign currency gain | (1,239) | (177) | ||||||||||||
Pension credit3 | (113) | (156) | ||||||||||||
Professional fees and other2 | 1,959 | 1,701 | ||||||||||||
Legal costs | 82 | — | ||||||||||||
Severance charges, net1 | 5 | 9 | ||||||||||||
| Adjusted EBIT | (13,616) | (13,953) | ||||||||||||
| Depreciation and amortization | 1,962 | 1,739 | ||||||||||||
| Non-cash share-based compensation costs | 665 | 382 | ||||||||||||
| Adjusted EBITDA | $ | (10,989) | $ | (11,832) | ||||||||||
___________________
1 Represents customary severance costs associated with staff reductions.
2 For the three months ended March 31, 2024, includes $1.9 million related to debt financing, and $0.2 million related to support costs. For the three months ended March 31, 2023, includes $1.7 million related to costs associated with corporate support.
3 Represents pension credits for the U.K. pension plan based on the difference between the expected return on plan assets and the cost of the discounted pension liability. The pension plan was frozen in 1994 and no new participants have been added since that date.
27
Liquidity and Capital Resources
Financing for operations consists primarily of our 2022 ABL Credit Agreement (which includes the Revolving Credit Loans, the Delayed Draw Term Loan and the ME/RE Loans), the A&R Term Loan Credit Agreement (which includes the Uptiered Loan and the Incremental Term Loan), and cash flows from our operations.
We have evaluated our liquidity within one year after the date of issuance of the accompanying condensed consolidated financial statements to assess the Company’s ability to fund its operations. Based upon such liquidity assessment, we believe that the Company’s current working capital, forecasted cash flows from operations, expected availability under our existing debt arrangements and capital expenditure financing is sufficient to fund our operations, service our indebtedness, and maintain compliance with our debt covenants. In the preparation of this liquidity assessment, we applied judgment to estimate the projected cash flows of the Company, including the following: (i) projected cash outflows, (ii) projected cash inflows, and (iii) projected availability under the Company’s existing debt arrangements. The cash flow projections were based on known or planned cash requirements for operating and financing costs and include management’s best estimate regarding future customer activity levels, pricing for its services and for its supplies and other factors. Actual results could vary significantly from those projections. We based this assessment on assumptions that may prove to be inaccurate, and we could exhaust our available capital resources sooner than we expect in the event that we fail to meet our current projections. See Note 10 - Debt in this Quarterly Report on Form 10-Q and Note 11 - Debt in our Annual Report on Form 10-K for additional details of our debt obligations.
We closely monitor the amounts and timing of our sources and uses of funds. Our ability to maintain a sufficient level of liquidity to fund our operations and meet our financial obligations will be dependent upon our future performance, which is subject to general economic conditions, industry cycles and financial, business and other factors affecting our operations, many of which are beyond our control. For example, the threat of recession and related economic repercussions could have a significant adverse effect on our financial position and business condition, as well as that of our clients and suppliers. Additionally, these events may, among other factors, impact our ability to generate cash flows from operations, access the capital markets on acceptable terms or at all, service our indebtedness, maintain compliance with the financial covenants contained in our various credit agreements and affect our future need or ability to borrow under our 2022 ABL Credit Facility and our A&R Term Loan Credit Agreement. Our ability to access the capital markets will depend on financial, economic and market conditions, many of which are outside of our control, and we may be unable to raise financing when needed, or on terms favorable to us, or at all. In addition, we may seek to engage in one or more of the following, such as refinancing and/or extending the maturities of all or part of our existing indebtedness, seeking covenant relief from our lenders, entering into a strategic partnership with one or more parties, or the sale or divestiture of assets, but there can be no assurance that we would be able to enter into such a transaction or transactions on a timely basis or on terms favorable to us, or at all. Our failure to raise capital through our operations, refinancings or strategic alternatives as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy. In addition to impacting our current sources of funding, the effects of such events may also impact our liquidity or require us to revise our allocation or sources of capital, reduce capital expenditures, implement further cost reduction measures and/or change our business strategy. Political economic repercussions could also have a broad range of effects on our liquidity sources and will depend on future developments that cannot be predicted at this time.
Our ability to generate operating cash flow, sell assets, access capital markets or take any other action to improve our liquidity and manage our debt is subject to the risks described or referenced herein and other risks and uncertainties that exist in our industry, some of which we may not be able to anticipate at this time or control. Such risks include the following:
• loss of customers or other unforeseen deterioration in demand for our services;
• seasonal fluctuations, such as severe weather and other variations in our clients’ industries that may impede or delay the timing of client orders and the delivery of our services;
• rapid increases in raw materials and labor costs that may hinder our ability to meet our forecasted operating expenses;
• persisting or increasing levels of inflation domestically and internationally and the impact of such inflation on our ability to meet our current forecast;
• changes in regulations governing our operations and unplanned costs to comply with such regulatory changes;
• counterparty credit risk related to our ability to collect our receivables; and
• unexpected or prolonged fluctuations in interest rates and their impact on our forecasted costs of raising additional capital.
See Item 1A “Risk Factors” in our Annual Report on Form 10-K for additional information.
As of March 31, 2024, we had approximately $16.7 million of borrowing capacity consisting of $6.7 million available under the 2022 ABL Credit Agreement, and $10.0 million available under the A&R Term Loan Agreement. Our principal uses of cash are for working capital, capital expenditures, and operations.
28
As of March 31, 2024, we were in compliance with our debt covenants. Our ability to maintain compliance with the financial covenants contained in the 2022 ABL Credit Agreement and the A&R Term Loan Credit Agreement is dependent upon our future operating performance and future financial condition, both of which are subject to various risks and uncertainties.
As of May 10, 2024, we had consolidated cash and cash equivalents of $15.4 million, excluding $5.1 million of restricted cash mainly as collateral for letters of credit and commercial card programs, and approximately $21.3 million of undrawn availability under our various credit facilities, resulting in total liquidity of $36.7 million.
Refer to Note 10 - Debt in this Quarterly Report on Form 10-Q and Note 11 - Debt in our Annual Report on Form 10-K for additional information on our debt instruments.
Cash and cash equivalents. Our cash and cash equivalents as of March 31, 2024 totaled $24.2 million, consisting of $19.2 million of unrestricted cash on hand, and $5.0 million of restricted cash. International cash balances as of March 31, 2024 were $8.2 million, and approximately $0.7 million of such cash is located in countries where currency or regulatory restrictions exist.
As of December 31, 2023, our cash and cash equivalents were $35.4 million, including $30.4 million of unrestricted cash on hand, and $5.0 million of restricted cash. International cash balances as of December 31, 2023 were $12.0 million, including $0.6 million of cash located in countries where currency or regulatory restrictions existed.
Our total debt and finance obligations were $307.2 million, of which $7.1 million was classified as current at March 31, 2024, compared to total debt of $311.4 million at December 31, 2023.
Cash Flows
The following table summarizes cash flows from Operating, Investing and Financing activities (in thousands):
| Three Months Ended March 31, | ||||||||||||||||||||
| Cash flows provided by (used in): | 2024 | 2023 | Increase (Decrease) | |||||||||||||||||
| Operating activities | $ | 1,886 | $ | (17,763) | 111 | % | ||||||||||||||
| Investing activities | (3,016) | (2,360) | (28) | % | ||||||||||||||||
| Financing activities | (9,834) | (6,236) | (58) | % | ||||||||||||||||
| Effect of exchange rate changes on cash | (273) | 153 | (278) | % | ||||||||||||||||
| Net change in cash and cash equivalents | $ | (11,237) | $ | (26,206) | 57 | % | ||||||||||||||
Cash flows attributable to our operating activities. For the three months ended March 31, 2024, net cash provided by operating activities was $1.9 million, an improvement of over 100% compared to cash used in operating activities of $17.8 million in the 2023 period. Our net cash provided by operating activities was driven by positive working capital changes of $5.7 million, primarily attributable to lower accounts receivable and prepayment balances, partially offset by lower accrued liabilities driven by payments related to insurance, property taxes and legal claims.
For the three months ended March 31, 2023, net cash used in operating activities was $17.8 million. Our net cash used in operating activities was driven by negative working capital changes of $13.3 million, primarily due to lower accrued liabilities driven by payments related to CARES Act deferred payments, payroll and severance payments, sales and use tax, and settlement of legal claims, which were partially offset by changes in accounts receivables and prepayments.
Cash flows attributable to our investing activities. For the three months ended March 31, 2024, net cash used in investing activities was $3.0 million, consisting of capital expenditures of $3.0 million.
For the three months ended March 31, 2023, net cash used in investing activities was $2.4 million, consisting primarily of $2.7 million of capital expenditures, partially offset by $0.3 million of cash proceeds from asset sales.
Cash flows attributable to our financing activities. For the three months ended March 31, 2024, net cash used in financing activities was $9.8 million, consisting primarily of net payments under our 2022 ABL Credit Facility of $9.9 million, payments under the ME/RE loans of $0.7 million, payments under the Incremental Term Loan of $0.4 million and payment of debt issuance costs of $1.4 million, partially offset by equipment financing of $2.5 million.
For the three months ended March 31, 2023, net cash used in financing activities was $6.2 million, consisting primarily of net payments under our ABL Credit Facility of $6.0 million.
29
Effect of exchange rate changes on cash and cash equivalents. For the three months ended March 31, 2024 and 2023, the effect of foreign exchange rate changes on cash was negative $0.3 million and positive $0.2 million, respectively. The impact of exchange rates on cash and cash equivalents is primarily attributable to fluctuations in U.S. Dollar exchange rate against the Canadian Dollar, the Euro, the British Pound, the Australian Dollar and Mexican Peso.
Off-Balance Sheet Arrangements
From time-to-time, we enter into off-balance sheet arrangements and transactions that can give rise to material off-balance sheet obligations. See Note 10 - Debt in this Quarterly Report on Form 10-Q and Note 11 - Debt in our Annual Report on Form 10-K for additional details of our off-balance sheet arrangements.
Critical Accounting Policies and Estimates
A discussion of our critical accounting policies and estimates is included in our Annual Report on Form 10-K. There were no material changes to our critical accounting policies during the three months ended March 31, 2024.
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | ||||
As a smaller reporting company, we are not required to provide the information required by this item 3.
| ITEM 4. | CONTROLS AND PROCEDURES | ||||
Evaluation of disclosure controls and procedures. Under the supervision and with the participation of our management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as defined by Rules 13a-15(e) and 15d-15(e) of the Exchange Act, as of the end of the period covered by this report. In designing and evaluating the disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on that evaluation, the CEO and CFO have concluded as of March 31, 2024, that our disclosure controls and procedures were effective and designed to ensure that the information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the requisite time periods.
Changes in Internal Control Over Financial Reporting. There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during the quarter ended March 31, 2024.
30
PART II—OTHER INFORMATION
| ITEM 1. | LEGAL PROCEEDINGS | ||||
For information on legal proceedings, see Note 13 - Commitments and Contingencies to the condensed consolidated financial statements included in this report.
| ITEM 1A. | RISK FACTORS | ||||
Our operations and financial results are subject to various risks and uncertainties. Other than as noted below, there have been no material changes in our risk factors as previously disclosed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K.
We may not be able to regain compliance with the NYSE’s continued listing requirements and rules, the NYSE may delist our common stock, which could negatively affect the Company, the price of our common stock and our shareholders’ ability to sell our common stock. The NYSE has several listing requirements set forth in the NYSE Listed Company Manual. For example, Section 802.01C of the NYSE Listed Company Manual requires that our common stock trade at a minimum average closing price of $1.00 per share over a consecutive 30 trading day period. Section 802.01B of the NYSE Listed Company Manual requires that either our average global market capitalization (inclusive of common and preferred equity) or our total shareholders’ equity exceed $50.0 million.
On March 14, 2024, the Company received a written notice (the “Written Notice”) from the NYSE that the Company is not in compliance with the continued listing standards set forth in Rule 802.01B of the NYSE Listed Company Manual because its average global market capitalization over a consecutive 30 trading-day period was less than $50 million and, at the same time, its last reported shareholders’ equity was less than $50.0 million. As required by the NYSE, the Company timely notified the NYSE of its intent to cure the deficiency and restore its compliance with the NYSE continued listing standards. On April 29, 2024, in accordance with applicable NYSE procedures, the Company submitted a plan (the “Plan”) advising the NYSE of the definitive actions the Company has taken, or is taking, that would bring it into compliance with the minimum global market capitalization listing standard within 12 months of receipt of the Written Notice. The NYSE will review the Plan and, within 45 days of its receipt, determine whether the Company has made a reasonable demonstration of an ability to conform to the relevant standards in the 12-month period. If the NYSE accepts the Plan, the Company’s common stock will continue to be listed and traded on the NYSE during the 12-month period, subject to the Company’s compliance with other NYSE continued listing standards and continued periodic review by the NYSE of the Company’s progress with respect to the Plan. The Written Notice has no immediate impact on the listing of the Company’s common stock, which will continue to trade on the NYSE during the applicable cure period, and does not result in a default under the Company's material debt or other agreements.
There is no assurance that we will regain compliance with Section 802.01B of the NYSE Listed Company Manual or other NYSE continued listing standards in the future, or that the NYSE will accept the Plan. A delisting of our common stock from the NYSE could negatively impact us by, among other things, reducing the liquidity and market price of our common stock; reducing the number of investors willing to hold or acquire our common stock, which could negatively impact our ability to raise equity financing; limiting our ability to issue additional securities or obtain additional financing in the future; decreasing the amount of news and analyst coverage of us; and causing us reputational harm with investors, our employees, and parties conducting business with us.
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | ||||
NONE
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES | ||||
NONE
| ITEM 4. | MINE SAFETY DISCLOSURES | ||||
NOT APPLICABLE
| ITEM 5. | OTHER INFORMATION | ||||
31
Insider Trading Arrangements. During the quarter ended March 31, 2024, none of the Company’s directors or officers (as defined in Rule 16a-1(f) under the Exchange Act) adopted terminated
32
| ITEM 6. | EXHIBITS | ||||
Exhibit Number | Description | |||||||
| 3.1 | ||||||||
| 3.2 | ||||||||
| 3.3 | ||||||||
| 3.4 | ||||||||
| 3.5 | ||||||||
| 3.6 | Certificate of Designations of Series A Preferred Stock of Team, Inc., as filed with the Secretary of State of the State of Delaware on February 2, 2022 (filed as Exhibit 3.1 to Team, Inc.’s Current Report on Form 8-K (File No. 001-08604) filed on February 2, 2022, incorporated by reference herein). | |||||||
| 10.1 | ||||||||
| 10.2 | ||||||||
| 31.1 | ||||||||
| 31.2 | ||||||||
| 31.3 | ||||||||
| 32.1 | ||||||||
| 32.2 | ||||||||
| 32.3 | ||||||||
| 101.INS | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. | |||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | |||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | |||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |||||||
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | |||||||
* Certain schedules and similar attachments have been omitted in reliance on Item 601(a)(5) of Regulation S-K. Team, Inc. will provide, on a supplemental basis, a copy of any omitted schedule or attachment to the SEC or its staff upon request.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized.
TEAM, INC. (Registrant) | ||||||||
| Date: May 14, 2024 | /S/ Keith D. Tucker | |||||||
| Keith D. Tucker Chief Executive Officer (Principal Executive Officer) | ||||||||
/S/ Nelson M. Haight | ||||||||
| Nelson M. Haight Chief Financial Officer (Principal Financial Officer) | ||||||||
/S/ Matthew E. Acosta | ||||||||
| Matthew E. Acosta Vice President, Chief Accounting Officer (Principal Accounting Officer) | ||||||||
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